TRAVIS COUNTY MUNICIPAL UTILITY DISTRICT NO. 3

Transcription

1 MUNICIPAL UTILITY DISTRICT NO. 3 Financial Statements and Supplemental Information for the Year Ended September 30, 2012 and Independent Auditors Report

2 TABLE OF CONTENTS Annual Filing Affidavit... 1 Independent Auditors Report... 2 Management s Discussion and Analysis... MDA-1 Basic Financial Statements Statement of Net Assets and Governmental Funds Balance Sheet... FS-1 Statement of Activities and Governmental Funds Revenues, Expenditures and Changes in Fund Balances... FS-2 Notes to the Basic Financial Statements... FS-3 Required Supplemental Information Budgetary Comparison Schedule - General Fund... FS-19 Texas Supplemental Information (TSI) Services and Rates... TSI-1 General Fund Expenditures... TSI-2 Temporary Investments... TSI-3 Taxes Levied and Receivable... TSI-4 Long-Term Debt Service Requirements - By Years... TSI-5 Changes in Long-Term Bonded Debt... TSI-6 Comparative Schedule of Revenues and Expenditures General Fund and Debt Service Fund - Five Years... TSI-7 Board Members, Key Personnel and Consultants... TSI-8 Other Supplemental Information (OSI) Principal Taxpayers... OSI-1 Assessed Value by Classification... OSI-2 Page

3 ANNUAL FILING AFFIDAVIT

4 ANNUAL FILING AFFIDAVIT STATE OF TEXAS COUNTY OF TRAVIS I, of the (Name of Duly Authorized District Representative) TRAVIS COUNTY (Name of District) hereby swear, or affirm, that the District above has reviewed and approved at a meeting of the District s Board of Directors on the 28th day of January, 2013, its annual audit report for the fiscal year ended September 30, 2012 and that copies of the annual audit report have been filed in the District s office, located at: 100 Congress Ave., Suite 1300 Austin, Texas (Address of District s Office) This filing affidavit and the attached copy of the audit report will be submitted to the Texas Commission on Environmental Quality to satisfy the annual filing requirements of Texas Water Code Section Date:, By: (Signature of District Representative) (Typed Name and Title of District Representative) Sworn to and subscribed to before me this day of,. (SEAL) (Signature of Notary) My Commission Expires On:,. Notary Public in the State of Texas Form TCEQ-0723 (Revised 10/2003) 1

5 INDEPENDENT AUDITORS REPORT

6 MAXWELL LOCKE & RITTER L L P Accountants and Consultants An Affiliate of CPAmerica International tel (512) fax (512) Austin: 401 Congress Avenue, Suite 1100 Austin, TX INDEPENDENT AUDITORS REPORT Round Rock: 303 East Main Street Round Rock, TX To the Board of Directors of Travis County Municipal Utility District No. 3: We have audited the accompanying financial statements of the governmental activities and each major fund of Travis County Municipal Utility District No. 3 (the District ) as of and for the year ended September 30, 2012, which collectively comprise the District s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the District s management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to previously present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of the District as of September 30, 2012, and the respective changes in financial position for the year then ended in conformity with accounting principles generally accepted in the United States of America. Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and budgetary comparison information on pages MDA-1 through MDA-7 and FS-19, respectively, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Affiliated Company ML& R WEALTH MANAGEMENT L L C A Registered Investment Advisor This firm is not a CPA firm

7 Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District s basic financial statements. The Texas supplemental information and other supplemental information listed in the table of contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The Texas supplemental information listed in the table of contents has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the Texas supplemental information listed in the table of contents is fairly stated in all material respects in relation to the basic financial statements as a whole. The other supplemental information listed in the table of contents has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. January 28, 2013

8 MANAGEMENT S DISCUSSION AND ANALYSIS

9 MANAGEMENT S DISCUSSION AND ANALYSIS In accordance with Governmental Accounting Standards Board Statement 34 ( GASB 34 ), the management of Travis County Municipal Utility District No. 3 (the District ) offers the following discussion and analysis to provide an overview of the District s financial activities for the year ended September 30, Since this information is designed to focus on current year s activities, resulting changes, and currently known facts, it should be read in conjunction with the District s financial statements that follow. FINANCIAL HIGHLIGHTS General Fund: At the end of the current fiscal year, the General Fund balance was $416,583, a decrease of $37,898 from the previous fiscal year. General Fund revenues increased from $14,618 in the previous fiscal year to $79,175 in the current fiscal year due to an increase in tax revenues generated from an increase in the District s tax rate allocated to the General Fund. Special Revenue Fund: Fund balance restricted for Contracted Master District expenditures increased from $1,057,426 in the previous fiscal year to $1,420,330 in the current fiscal year. The District incurred $1,318,677 in contract charges to the Master District during the current fiscal year. Revenues increased from $1,677,263 in the previous fiscal year to $1,691,939 due to an increase in the District s overall assessed valuation. Debt Service Fund: Fund balance reserved for the Debt Service Fund decreased from $1,062,019 in the previous fiscal year to $1,021,984 in the current fiscal year. Debt Service Fund revenues increased from $722,603 in the previous fiscal year to $758,287 in the current fiscal year due to an increase in tax revenues generated from an increase in the District s tax rate allocated to the Debt Service Fund. Governmental Activities: On a government-wide basis for governmental activities, the District had expenses net of revenues of $249,061. Net assets decreased from $2,491,381 to $2,242,320. OVERVIEW OF THE DISTRICT The District is a political subdivision of the State of Texas created, along with six other conservation and reclamation districts, by an act of the 74 th Regular Session of the Texas Legislature on June 16, 1995, and operates pursuant to Chapters 49 and 54 of the Texas Water Code, as amended. The District was created to provide water, wastewater and storm drainage, including water quality facilities, to the approximately 854 acres within its boundaries, all of which lies within Travis County, Texas and the Barton Creek Development which includes the approximately 3,520 acres located in Travis County Municipal Utility Districts No. 3, 4, 5, 6, 7, 8 and 9. The District, which encompasses approximately 854 acres of land, is located in western Travis County and lies approximately 8 miles west of the City of Austin s central business district and is situated approximately 2 miles southwest of the intersection of RM 2244 and Capital of Texas Highway. The District lies entirely within the extraterritorial jurisdiction of Austin, Texas. Travis County Municipal Utility District No. 4 serves as the Master District for all seven districts. The Master District operates and maintains all of the water, wastewater and drainage and including water quality, facilities for the seven districts by contract. MDA-1

10 MANAGEMENT S DISCUSSION AND ANALYSIS USING THIS ANNUAL REPORT This annual report consists of six parts: 1. Management s Discussion and Analysis (this section) 2. Basic Financial Statements 3. Notes to the Basic Financial Statements 4. Required Supplementary Information 5. Texas Supplemental Information (required by the Texas Commission on Environmental Quality (the TSI section)) 6. Other Supplementary Information (the OSI section) For purposes of GASB 34, the District is considered a special purpose government. This allows the District to present the required fund and government-wide statements in a single schedule. The requirement for fund financial statements that are prepared on the modified accrual basis of accounting is met with the Governmental Funds Total column. An adjustment column includes those entries needed to convert to the full accrual basis government-wide statements. Government-wide statements are comprised of the Statement of Net Assets and the Statement of Activities. OVERVIEW OF THE BASIC FINANCIAL STATEMENTS The Statement of Net Assets and Governmental Funds Balance Sheet includes a column (titled Governmental Funds Total ) that represents a balance sheet prepared using the modified accrual basis of accounting. This method measures cash and all other financial assets that can be readily converted to cash. The adjustments column converts those balances to a balance sheet that more closely reflects a private-sector business. Over time, increases or decreases in the District s net assets will indicate financial health. The Statement of Activities and Governmental Funds Revenues, Expenditures and Changes in Fund Balances includes a column (titled Governmental Funds Total ) that derives the change in fund balances resulting from current year revenues, expenditures, and other financing sources or uses. These amounts are prepared using the modified accrual basis of accounting. The adjustments column converts those activities to full accrual, a basis that more closely represents the income statement of a private-sector business. The Notes to the Basic Financial Statements provide additional information that is essential to a full understanding of the information presented in the Statement of Net Assets and Governmental Funds Balance Sheet and the Statement of Activities and Governmental Funds Revenues, Expenditures, and Changes in Fund Balances. The Required Supplemental Information presents a comparison statement between the District s adopted budget and its actual results. MDA-2

11 MANAGEMENT S DISCUSSION AND ANALYSIS FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE Statement of Net Assets: The following table reflects the condensed Statement of Net Assets: Summary Statement of Net Assets Governmental Activities Change Increase (Decrease) Current and other assets $ 3,523,213 $ 3,181,523 $ 341,690 Capital and non-current assets 7,559,289 8,005,227 (445,938) Total Assets 11,082,502 11,186,750 (104,248) Current Liabilities 1,134, , ,475 Long-term Liabilities 7,705,787 7,713,449 (7,662) Total Liabilities 8,840,182 8,695, ,813 Invested in Capital Assets, net of related debt (644,809) (86,513) (558,296) Restricted 2,469,496 2,123, ,390 Unrestricted 417, ,788 (37,155) Total Net Assets $ 2,242,320 $ 2,491,381 $ (249,061) The District s combined net assets decreased from $2,491,381 in the previous fiscal year to $2,242,320 in the current fiscal year. Capital assets are $7,120,210 of the total assets and $1,017,344 is restricted for debt service. The District s unrestricted net assets, which can be used to finance day to day operations, totaled $417,633. MDA-3

12 MANAGEMENT S DISCUSSION AND ANALYSIS Revenues and Expenses: Summary Statement of Activities Governmental Activities Change Increase (Decrease) Property Tax $ 2,525,292 $ 2,412,081 $ 113,211 Other 16,974 19,806 (2,832) Total Revenues 2,542,266 2,431, ,379 Contracted Master District services 1,318,677 1,210, ,003 Repairs and maintenance 16,662 17,364 (702) Legal and auditing 32,605 35,434 (2,829) Other 82,875 73,858 9,017 Debt service 308, ,605 (72,705) Deprecation 193, ,778 1 Amortization 837,829 65, ,341 Total Expenses 2,791,327 1,978, ,126 Change in Net Assets (249,061) 453,686 (702,747) Beginning Net Assets 2,491,381 2,037, ,686 Ending Net Assets $ 2,242,320 $ 2,491,381 $ (249,061) Revenues were $2,542,266 for the fiscal year ended September 30, 2012 while expenses were $2,791,327. Net assets decreased $249,061. Property taxes and associated penalties totaled $2,525,292. Included in these taxes are real and personal property taxes which are assessed October 1 and payable before the following January 31. Revenues - Fiscal Year 2012 Other 1% Property Tax Revenue 99% The District s assessed value in fiscal year 2012 was approximately $484 million compared to $482 million in fiscal year The tax rate is set after reviewing the operating and debt service requirements and appraised values determined by Travis County. The ad valorem tax rate for fiscal year 2012 was $0.52 per $100 assessed valuation. The tax rate for the fiscal year 2011 was $0.50. The District s primary revenue source is property taxes. MDA-4

13 MANAGEMENT S DISCUSSION AND ANALYSIS ANALYSIS OF GOVERNMENTAL FUNDS Governmental Funds by Year Cash on deposit $ 31,634 $ 50,008 $ 23,569 $ 99,144 Cash equivalents/investments 2,294,611 2,301,223 2,470,620 2,542,859 Receivables 1,487,581 1,149, , ,679 Total Assets $ 3,813,826 $ 3,500,981 $ 3,195,186 $ 3,628,682 Accounts payable 12,631 5,795 5,255 95,692 Deferred revenue 46,454 33,669 16,356 10,923 Interfund payable 290, , , ,476 Intergovernmental payable 518, , , ,108 Total Liabilities 868, , , ,199 Restricted 2,529,003 2,206,154 1,857,835 2,149,129 Assigned - 66, ,967 97,415 Unassigned 416, , , ,939 Total Fund Balance 2,945,586 2,660,635 2,409,307 2,786,483 Total Liabilities and Fund Balances $ 3,813,826 $ 3,500,981 $ 3,195,186 $ 3,628,682 For the fiscal year ended September 30, 2012, the District s governmental funds reflect a combined fund balance of $2,945,586. This fund balance includes a $37,898 decrease in the General Fund. The Special Revenue Fund reflects an increase of $362,904 in fiscal year The Special Revenue Fund incurred Master District charges of $1,318,677. The Debt Service Fund reflects a decrease of $40,035 in fiscal year The Debt Service Fund remitted bond principal of $575,000 and bond interest of $227,612. More detailed information about the District s debt is presented in the Notes to the Basic Financial Statements. The Capital Project Fund purchases the District s infrastructure. The Capital Projects Fund had a $20 decrease in fund balance for fiscal year The District did not purchase infrastructure during the current fiscal year. MDA-5

14 MANAGEMENT S DISCUSSION AND ANALYSIS BUDGETARY HIGHLIGHTS The General Fund pays for daily operating expenditures. On September 26, 2011, the Board of Directors approved a budget including revenues of $78,470 as compared to expenses of $144,732. When comparing actual to budget, the District had a positive variance of $28,364 which is due to lower legal fees and operating expenses compared to budget. More detailed information about the District s budgetary comparison is presented in the Required Supplemental Information. CAPITAL ASSETS The District s governmental activities had invested $7,120,210 in land and infrastructure. The detail is reflected in the following schedule: Summary of Capital Assets, net 9/30/2012 9/30/2011 Capital Assets: Land $ 8,000 $ 8,000 Water/Wastewater/Drainage System 9,220,761 9,220,761 Less: Accumulated Depreciation (2,108,551) (1,914,772) Total Net Capital Assets $ 7,120,210 $ 7,313,989 More detailed information about the District s capital assets is presented in the Notes to the Basic Financial Statements. LONG TERM DEBT The District has the following balances outstanding on unlimited tax bonds: Bonds Payable Series 2008 $ 100,000 Series ,385,000 Series ,030,000 Series 2012A 2,655,000 Total $ 8,170,000 The District owes approximately $8.2 million to bond holders. During the year, the District issued three Series of unlimited refunding tax bonds for a total of $8,335,000 to advance refund $7,865,000 of outstanding principal. Additionally, the District s principal balance was reduced by $575,000. More detailed information about the District s long-term debt is presented in the Notes to the Basic Financial Statements. MDA-6

15 MANAGEMENT S DISCUSSION AND ANALYSIS CURRENTLY KNOWN FACTS, DECISIONS, OR CONDITIONS The property tax assessed value for 2012 is approximately $518 million and the net taxable value is approximately $508 million. The fiscal year 2013 tax rate is $0.520 on each $100 of taxable value. Approximately 5% of the property tax will fund general operating expenses, approximately 67% will fund contracted Master District activity, and approximately 28% of the property tax will be set aside for debt service. The adopted budget for fiscal year 2013 projects an operating fund balance increase of $12,526. REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the District s finances and to demonstrate the District s accountability for the funds it receives. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the District in care of Armbrust & Brown, PLLC, 100 Congress Avenue, Suite 1300, Austin, Texas MDA-7

16 BASIC FINANCIAL STATEMENTS

17 STATEMENT OF NET ASSETS AND GOVERNMENTAL FUNDS BALANCE SHEET Special Debt Capital Governmental Statement General Revenue Service Projects Funds Adjustments of Fund Fund Fund Fund Total Note 2 Net Assets ASSETS Cash and cash equivalents: Cash $ 31,634 $ - $ - $ - $ 31,634 $ - $ 31,634 Cash equivalents 460,984 13, ,917 70, , ,611 Investments 735, ,000-1,470,000-1,470,000 Receivables: Taxes 1,050 31,822 13,582-46,454-46,454 Interest ,801-1,801 Interfund receivables, net - 266,748 8,030 15, ,613 (290,613) - Intergovernmental - 1,143, ,143,751-1,143,751 Other 4, ,962-4,962 Deferred charges, net of accumulated amortization , ,079 Capital assets, net of accumulated depreciation: Land ,000 8,000 Water/Wastewater/Drainage System ,112,210 7,112,210 TOTAL ASSETS $ 1,234,568 $ 1,456,177 $ 1,036,392 $ 86,689 $ 3,813,826 $ 7,268,676 $ 11,082,502 LIABILITIES Accounts payable $ 12,631 $ - $ - $ - $ 12,631 $ - $ 12,631 Accrued interest payable ,222 18,222 Interfund payables, net 285,762 4, ,613 (290,613) - Intergovernmental payables 518, , ,542 Deferred revenue - taxes 1,050 31,822 13,582-46,454 (46,454) - Bonds payable: Due within one year , ,000 Due after one year ,705,787 7,705,787 TOTAL LIABILITIES 817,985 35,847 14, ,240 7,971,942 8,840,182 FUND BALANCE / NET ASSETS Fund balances: Restricted for Contracted Master District services - 1,420, ,420,330 (1,420,330) - Restricted for Debt Service - - 1,021,984-1,021,984 (1,021,984) - Restricted for Capital Projects ,689 86,689 (86,689) - Unassigned 416, ,583 (416,583) - TOTAL FUND BALANCES 416,583 1,420,330 1,021,984 86,689 2,945,586 (2,945,586) - TOTAL LIABILITIES AND FUND BALANCES $ 1,234,568 $ 1,456,177 $ 1,036,392 $ 86,689 $ 3,813,826 Net assets: Invested in capital assets, net of related debt (644,809) (644,809) Restricted for Contracted Master District services 1,452,152 1,452,152 Restricted for debt service 1,017,344 1,017,344 Unrestricted 417, ,633 TOTAL NET ASSETS $ 2,242,320 $ 2,242,320 The accompanying notes are an integral part of this statement. FS-1

18 STATEMENT OF ACTIVITIES AND GOVERNMENTAL FUNDS REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES Special Debt Capital Governmental Statement General Revenue Service Projects Funds Adjustments of Fund Fund Fund Fund Total Note 2 Activities REVENUES: Property taxes, including penalties $ 68,173 $ 1,691,528 $ 752,806 $ - $ 2,512,507 $ 12,785 $ 2,525,292 Inspection/review fees 4, ,000-4,000 Interest 5, , ,478-11,478 Other 1, ,496-1,496 TOTAL REVENUES 79,175 1,691, , ,529,481 12,785 2,542,266 EXPENDITURES / EXPENSES: Current: Contracted Master District services - 1,318, ,318,677-1,318,677 Repairs/maintenance 16, ,662-16,662 Inspection/review fees 2, ,150-2,150 Utilities 4, ,108-4,108 Operations/management fee 24, ,788-24,788 Director fees, including payroll taxes 4, ,360-4,360 Legal fees 21, ,605-21,605 Engineering fees 13, ,080-13,080 Audit fees 11, ,000-11,000 Financial advisor fees 70 1, ,580-2,580 Bookkeeping fees 17, ,000-17,000 Tax appraisal/collection 350 8,621 3,838-12,809-12,809 Insurance Other ,083-1,083 Debt service: Principal , ,000 (575,000) - Interest , ,612 79, ,300 Fiscal agent fees and other - - 1,600-1,600-1,600 Bond issuance expenditures , ,641 (444,641) - Depreciation , ,779 Amortization , ,829 TOTAL EXPENDITURES / EXPENSES 117,073 1,329,035 1,253, ,699,672 91,655 2,791,327 CHANGE IN FUND BALANCE / NET ASSETS (37,898) 362,904 (495,177) (20) (170,191) (78,870) (249,061) OTHER FINANCING SOURCES (USES)- Proceeds from bond refundings - - 8,335,000-8,335,000 (8,335,000) - Bond premium , ,367 (215,367) - Payments to escrow agent - - (8,095,225) - (8,095,225) 8,095,225 - TOTAL OTHER FINANCING SOURCES (USES) , ,142 (455,142) - Excess / (deficiency) of revenues and other financing sources over / (under) expenditures and other financing uses (37,898) 362,904 (40,035) (20) 284,951 (534,012) (249,061) FUND BALANCE / NET ASSETS: Beginning of the year 454,481 1,057,426 1,062,019 86,709 2,660,635 (169,254) 2,491,381 End of the year $ 416,583 $ 1,420,330 $ 1,021,984 $ 86,689 $ 2,945,586 $ (703,266) $ 2,242,320 The accompanying notes are an integral part of this statement. FS-2

19 NOTES TO THE BASIC FINANCIAL STATEMENTS

20 NOTES TO THE BASIC FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of Travis County Municipal Utility District No. 3 (the District ) relating to the funds included in the accompanying financial statements conform to generally accepted accounting principles ( GAAP ) as applied to governmental entities. Generally accepted accounting principles for local governments include those principles prescribed by the Governmental Accounting Standards Board ( GASB ), which constitutes the primary source of GAAP for governmental units. The more significant of these accounting policies are described below and, where appropriate, subsequent pronouncements will be referenced. Reporting Entity - The District was created by an order of the Texas State Legislature under House Bill 1606, passed by the 74 th Legislature, regular session, 1995, as signed by the Governor on June 16, The District operates under Chapters 49 and 54 of the Texas Water Code pursuant to Article 16, Section 59 of the Texas Constitution. The reporting entity of the District encompasses those activities and functions over which the District s elected officials exercise significant oversight or control. The District is governed by a five member Board of Directors (the Board ) which has been elected by District residents or appointed by the Board. The District is not included in any other governmental reporting entity as defined by Statement No. 14 of the GASB, since Board members are elected by the public and have decision making authority, the power to designate management, the responsibility to significantly influence operations and primary accountability for fiscal matters. In addition, there are no component units as defined in GASB Statements No. 14 and No. 39 which are included in the District s reporting entity. Basis of Presentation - Government-wide and Fund Financial Statements - The basic financial statements are prepared in conformity with GASB Statement No. 34, and include a column for government-wide (based upon the District as a whole) and fund financial statement presentations. Statement No. 34 also requires as supplementary information Management s Discussion and Analysis, which includes an analytical overview of the District s financial activities. In addition, a budgetary comparison statement is presented that compares the adopted and amended General Fund budget with actual results. Government-wide financial statements - The District s Statement of Net Assets includes both non-current assets and non-current liabilities of the District, which were previously recorded in the general fixed assets account group and the general long-term debt account group. In addition, the government-wide Statement of Activities column reflects depreciation expense on the District s capital assets, including infrastructure. Government-wide financial statements (continued) - The government-wide focus is more on the sustainability of the District as an entity and the change in aggregate financial position resulting from financial activities of the fiscal period. The focus of the fund financial statements is on the individual funds of the governmental categories. Each presentation provides valuable information that can be analyzed and compared to enhance the usefulness of the information. FS-3

21 NOTES TO THE BASIC FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES (continued) - Fund Financial Statements - Fund based financial statement columns are provided for governmental funds. GASB Statement No. 34 sets forth minimum criteria (percentage of assets, liabilities, revenues or expenditures of either fund category) for the determination of major funds. All of the District s funds are reported as major funds. Governmental Fund Types - The accounts of the District are organized and operated on the basis of funds, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for with a self-balancing set of accounts that comprise its assets, liabilities, fund balances, revenues and expenditures. The various funds are grouped by category and type in the financial statements. The District maintains the following fund types: General Fund - The General Fund accounts for financial resources in use for general types of operations which are not encompassed within other funds. This fund is established to account for resources devoted to financing the general services the District provides for its residents. Tax revenues and other sources of revenue used to finance the fundamental operations of the District are included in this fund. Special Revenue Fund - The Special Revenue Fund accounts for the proceeds of specific revenue sources that are legally restricted to expenditures for specified purposes. The primary sources of revenues are water, wastewater and water quality service fees to end-users and contributions from participating districts. Debt Service Fund - The Debt Service Fund is used to account for the accumulation of resources for, and the payment of, debt principal, interest and related costs. Capital Projects Fund - The Capital Projects Fund is used to account for financial resources to be used for the acquisition or construction of major capital facilities. Non-current Governmental Assets and Liabilities - GASB Statement No. 34 eliminates the presentation of account groups, but provides for these records to be maintained and incorporates the information into the government-wide financial statement column in the Statement of Net Assets. FS-4

22 NOTES TO THE BASIC FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES (continued) - Basis of Accounting Governmental Funds Government-wide Statements - The government-wide financial statement column is reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of the related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Fund Financial Statements - The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. All governmental fund types are accounted for using a current financial resources measurement focus. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. Operating statements of these funds present increases (i.e., revenues and other financing sources) and decreases (i.e., expenditures and other financing uses) in the net current assets. Governmental funds are accounted for on the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recorded when susceptible to accrual (i.e., both measurable and available). Measurable means that the amount of the transaction can be determined and available means the amount of the transaction is collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Expenditures, if measurable, are generally recognized on the accrual basis of accounting when the related fund liability is incurred. Exceptions to this general rule include the unmatured principal and interest on general obligation long-term debt which is recognized when due. This exception is in conformity with GAAP. Property tax revenues are recognized when they become available. In this case, available means when due, or past due and receivable within the current period and collected within the current period or soon enough thereafter to be used to pay liabilities of the current period. Such time thereafter shall not exceed 60 days. Tax collections expected to be received subsequent to the 60-day availability period are reported as deferred revenue. All other revenues of the District are recorded on the accrual basis in all funds. No accrual for property taxes collected within sixty days of year end has been made as such amounts are deemed immaterial; delinquent property taxes at year end are reported as deferred revenue. FS-5

23 NOTES TO THE BASIC FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES (continued) - Basis of Accounting (continued) Governmental Funds (continued) The District reports deferred revenue on its combined balance sheet. Deferred revenues arise when a potential revenue does not meet both the measurable and available criteria for recognition in the current period. In subsequent periods, when revenue recognition criteria are met, the liability for deferred revenue is removed from the combined balance sheet and revenue is recognized. Budgets and Budgetary Accounting - A budget was adopted on September 26, 2011, for the General Fund on a basis consistent with GAAP. The District s Board utilizes the budget as a management tool for planning and cost control purposes. The budget was not amended during the current fiscal year. Cash and Cash Equivalents - Cash and cash equivalents include cash on deposit as well as investments with maturities of three months or less. The investments, consisting of certificates of deposit, money market funds, and obligations in the State Treasurer s Investment Pool, are recorded at cost, which approximates fair market value. Capital Assets - Capital assets, which include land and a water, wastewater and drainage system are reported in the government-wide column in the Statement of Net Assets. Public domain ( infrastructure ) capital assets including a water, wastewater and drainage system, are capitalized. Items purchased or acquired are reported at historical cost or estimated historical cost. Contributed fixed assets are recorded as capital assets at estimated fair market value at the time received. Interest incurred during construction of capital facilities is not capitalized. Capital assets are depreciated using the straight-line method over the following estimated useful lives: Asset Years Water/Wastewater/Drainage System Interfund Transactions - Transfers from one fund to another fund are reported as interfund receivables and payables if there is intent to repay that amount and if the debtor fund has the ability to repay the advance on a timely basis. Operating transfers represent legally authorized transfers from the fund receiving resources to the fund through which the resources are to be expended. Long-Term Debt - Combination unlimited tax bonds, which have been issued to fund capital projects, are to be repaid from tax revenues of the District. FS-6

24 NOTES TO THE BASIC FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES (continued) - In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the straight line method. Bonds payable are reported net of the applicable bond premium or discount. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums and discounts on debt issuances are reported as other financing sources and uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as capital outlay expenditures. Fund Equity - The District adopted GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, which establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. See Note 12 for additional information on those fund balance classifications. Recently Issued Accounting Pronouncements - In June 2011, the GASB issued GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, effective for fiscal years beginning after December 15, The objective of GASB Statement No. 63 is to provide financial reporting guidance for deferred outflows of resources and deferred inflows of resources. GASB Concepts Statement No. 4, Elements of Financial Statements, introduced and defined those elements as a consumption of net assets by the government that is applicable to a future reporting period, and an acquisition of net assets by the government that is applicable to a future reporting period, respectively. Previous financial reporting standards do not include guidance for reporting those financial statement elements, which are distinct from assets and liabilities. Concepts Statement No. 4 also identifies net position as the residual of all other elements presented in a statement of financial position. This Statement amends the net asset reporting requirements in GASB Statement No. 34, Basic Financial Statements - and Management s Discussion and Analysis - for State and Local Governments, and other pronouncements by incorporating deferred outflows of resources and deferred inflows of resources into the definitions of the required components of the residual measure and by renaming that measure as net position, rather than net assets. Management is still evaluating the effects that the full implementation of GASB Statement No. 63 will have on its financial statement for the year ended September 30, In March 2012, the GASB issued GASB Statement No. 65, Items Previously Reported as Assets and Liabilities, effective for fiscal years beginning after December 15, The objective of GASB Statement No. 65 is to establish accounting and financial reporting standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities and to recognize, as outflows of resources or inflows of resources, certain items that were previously reported as assets and liabilities, such as deferred bond issuance costs. Management is still evaluating the effects that the full implementation of GASB Statement No. 65 will have on its financial statement for the year ended September 30, FS-7

25 NOTES TO THE BASIC FINANCIAL STATEMENTS 2. RECONCILIATION OF THE GOVERNMENTAL FUNDS Adjustments to convert the Governmental Funds Balance Sheet to the Statement of Net Assets are as follows: Fund balances - total governmental funds $ 2,945,586 Deferred charges are not financial resources and, therefore, are not reported in governmental funds- Deferred charges, net of accumulated amortization 439,079 Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the governmental funds- Capital assets 9,228,761 Less: Accumulated depreciation (2,108,551) 7,120,210 Revenue is recognized when earned in the government statements, regardless of availability. Governmental funds report deferred revenue for revenues earned but not available 46,454 Long-term liabilities are not due and payable in the current period and, therefore, are not reported in the governmental funds: Bonds payable (8,170,000) Bond premiums,discounts and deferred charges, net (120,787) Accrued interest (18,222) (8,309,009) Net assets of governmental activities $ 2,242,320 Adjustments to convert the Governmental Funds Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities are as follows : Changes in fund balances - governmental funds $ 284,951 Amounts reported for governmental activities in the Statement of activities are different because: Governmental funds report: Bond principal payments as expenditures 575,000 Interest expenditures in year paid (79,688) Tax revenue when collected 12,785 Bond issuance costs in year paid 444,641 Bond sales and related bond premium and deferred charge as other financing source/(use) (455,142) 497,596 Governmental funds do not report: Depreciation (193,779) Amortization (837,829) (1,031,608) Change in net assets - governmental activities $ (249,061) FS-8

26 NOTES TO THE BASIC FINANCIAL STATEMENTS 3. CASH AND INVESTMENTS The investment policies of the District are governed by State statute and an adopted District Investment Policy that includes depository contract provisions and custodial contract provisions. Major provisions of the District s investment policy include: depositories must be FDIC-insured Texas banking institutions; depositories must fully insure or collateralize all demand and time deposits; securities collateralizing time deposits are held by independent third party trustees. Cash - At September 30, 2012, the carrying amount of the District's deposits was $31,634 and the bank balance was $35,819. The bank balance was covered by federal depository insurance. Investments - Interest rate risk - In accordance with its investment policy, the District manages its exposure to declines in fair values through investment diversification and limiting investments as follows: Money market mutual funds are required to have weighted average maturities of 90 days or fewer; and Other mutual fund investments are required to have weighted average maturities of less than two years. Credit risk - The District s investment policy requires the application of the prudent-person rule: Investments are made as a prudent person would be expected to act, with discretion and intelligence, and considering the probable safety of their capital as well as the probable income to be derived. The District s investment policy requires that District funds be invested in: Obligations of the United States Government and or its agencies and instrumentalities; Money market mutual funds with investment objectives of maintaining a stable net asset value of $1 per share; Mutual funds rated in one of the three highest categories by a nationally recognized rating agency; and Securities issued by a State or local government or any instrumentality or agency thereof, in the United States, and rated in one of the three highest categories by a nationally recognized rating agency; and Public funds investment pools rated AAA or AAA-m by a nationally recognized rating agency. FS-9

27 NOTES TO THE BASIC FINANCIAL STATEMENTS 3. CASH AND INVESTMENTS (continued) - At September 30, 2012, the District held the following investments: Fair Market Value Weighted Investment at 9/30/2012 Average Maturity Rating Rating Agency Government MM Service $ 1,399 1 AAAm Standard & Poor s Money Market 490,950 1 Various Various TexPool 332,262 1 AAAm Standard & Poor s Certificates of Deposit 1,470, Various Various $ 2,294,611 The Comptroller of Public Accounts is the sole officer and director of the Texas Treasury Safekeeping Trust Company, which is authorized to operate the Texas Local Government Investment Pool ( TexPool ). Although TexPool is not registered with the SEC as an investment company, they operate in a manner consistent with the SEC s Rule 2a-7 of the Investment Company Act of These investments are stated at fair value which is the same as the value of the pool shares. TexPool also has an advisory board to advise on TexPool s investment policy. This board is made up equally of participants and nonparticipants who do not have a business relationship with TexPool. Federated Investors is the investment manager for the pool and manages daily operations of TexPool under a contract with the Comptroller. TexPool s investment policy stipulates that it must invest in accordance with the Public Funds Investment Act. Concentration of credit risk - In accordance with the District s investment policy, investments in individual securities are to be limited to ensure that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio. As of September 30, 2012, the District did not own any investments in individual securities. Custodial credit risk-deposits - Custodial credit risk is the risk that in the event of a bank failure, the District s deposits may not be returned to it. The government s investment policy requires that the District s deposits be fully insured by FDIC insurance or collateralized with obligations of the United States or its agencies and instrumentalities. As of September 30, 2012, the District s bank deposits were covered by FDIC insurance and other pledged collateral. 4. PROPERTY TAXES Property taxes attach as an enforceable lien on January 1. Taxes are levied on or about October 1, are due on November 1, and are past due the following February 1. The Travis Central Appraisal District established appraisal values in accordance with requirements of the Texas Legislature. The District levies taxes based upon the appraised values. The Travis County Tax Assessor Collector bills and collects the District's property taxes. The Board set current tax rates on September 26, FS-10

28 NOTES TO THE BASIC FINANCIAL STATEMENTS 4. PROPERTY TAXES (continued) - The property tax rates, established in accordance with State law, were based on 100% of the net assessed valuation of real property within the District on the 2011 tax roll. The tax rate, based on total taxable assessed valuation of $484,392,692 was $0.52 on each $100 valuation and was allocated as follows: Tax Rate General Fund $ Special Revenue Fund Debt Service Fund $ The maximum allowable maintenance tax of $1.00 was established by the voters on November 7, Property taxes receivable at September 30, 2012, consisted of the following: Special Debt General Revenue Service Fund Fund Fund Total Current year levy $ 774 $ 19,085 $ 8,496 $ 28,355 Prior years levies ,737 5,086 18,099 $ 1,050 $ 31,822 $ 13,582 $ 46,454 The District is prohibited from writing off real property taxes without specific authority from the Texas Legislature. 5. CONTRACT TAXES At an election held November 7, 1995, voters authorized a contract tax on all property within the District subject to taxation. During the year ended September 30, 2012, the District levied an ad valorem tax at the rate of $ per $100 of assessed valuation, which resulted in a tax levy of $1,693,874 on taxable valuation of $484,392,692 for the 2011 tax year. This contract tax was used to pay for its pro rata share of interest on Travis County Municipal Utility District No. 4 s bonds as well as for operations and maintenance expenses and reserve requirements on Master District Facilities as described in Note 9. FS-11

29 NOTES TO THE BASIC FINANCIAL STATEMENTS 6. INTERFUND ACCOUNTS A summary of interfund accounts at September 30, 2012, is as follows: Interfund Receivables Payables General Fund - Special Revenue Fund $ - $ 266,748 Debt Service Fund - 4,005 Capital Projects Fund - 15,009 Special Revenue Fund - General Fund 266,748 - Debt Service Fund - 4,025 Debt Service Fund - General Fund 4,005 - Special Revenue Fund 4,025 - Capital Projects Fund Capital Projects Fund - General Fund 15,009 - Debt Service Fund $ 290,613 $ 290, CHANGES IN CAPITAL ASSETS A summary of changes in capital assets follows: Balance Balance 10/1/2011 Additions Deletions 9/30/2012 Capital assets not being depreciated: Land $ 8, $ 8,000 Capital assets being depreciated: Water/Wastewater/Drainage System 9,220, ,220,761 Total capital assets being depreciated 9,220, ,220,761 Less accumulated depreciation for: Water/Wastewater/Drainage System (1,914,772) (193,779) - (2,108,551) Total accumulated depreciation (1,914,772) (193,779) - (2,108,551) Total capital assets being depreciated, net of accumulated depreciation 7,305,989 (193,779) - 7,112,210 Total capital assets, net $ 7,313,989 $ (193,779) - $ 7,120,210 FS-12

30 NOTES TO THE BASIC FINANCIAL STATEMENTS 8. BONDED DEBT The following is a summary of bond transactions of the District for the year ended September 30, 2012: Combination Unlimited Tax Bonds Bonds payable at October 1, 2011 $ 8,275,000 Bonds issued 8,335,000 Bonds retired (8,440,000) Subtotal 8,170,000 Less: Bond Premiums/Discounts, net of amortization 199,721 Less: Deferred charge on refunding, net of amortization (78,934) Bonds payable at September 30, 2012 $ 8,290,787 Bonds payable at September 30, 2012, were comprised of the following individual issues: Unlimited Contract Tax Bonds: $2,175, Unlimited Tax Bonds partially refunded and payable paid serially through the year 2013 at interest rates which range from 4.25% to 6.25%. Refunding Bonds: $3,595, Unlimited Tax Refunding Bonds paid serially through the year 2025 at interest rates which range from 2.0% to 4.0%. Bonds maturing on or after September 1, 2019 are redeemable prior to maturity in whole or from time to time in part on September 1, 2018 or any date thereafter at a price of par plus accrued interest from the most recent interest payment date to the date fixed for redemption. The bonds maturing on September 1, 2025 are subject to mandatory sinking fund redemption. $2,050, Unlimited Tax Refunding Bonds paid serially through the year 2025 at interest rates which range from 1.75% to 3.0%. Bonds maturing on or after September 1, 2021 are redeemable prior to maturity in whole or from time to time in part on September 1, 2019 or any date thereafter at a price of par plus accrued interest from the most recent interest payment date to the date fixed for redemption. The bonds maturing on September 1, 2021, 2023 and 2025 are subject to mandatory sinking fund redemption. $2,690, A Unlimited Tax Refunding Bonds paid serially through the year 2024 at interest rates which range from 2.0% to 3.0%. Bonds maturing on or after September 1, 2021 are redeemable prior to maturity in whole or from time to time in part on September 1, 2019 or any date thereafter at a price of par plus accrued interest from the most recent interest payment date to the date fixed for redemption. The bonds maturing on September 1, 2021, and 2024 are subject to mandatory sinking fund redemption. FS-13